Economy in Brief

The S&P Global manufacturing PMIs are showing more improvement than deterioration in February. 11 countries in the table show improvement month-to-month while 6 show deterioration. The median reading in February is a PMI value of 50 which is right on the cusp of showing declines in manufacturing. That reading compares to readings of 49 over three months, and six months vs. a reading of 48.8 over 12 months.

In February, 61.1% of the respondents show improvement month-to-month. Over three months, 77.8% show improvement compared to six-months; over six months 72.2% show improvement compared to 12-months; over 12 months 50% show improvement compared to one-year ago. What we see from these metrics is that manufacturing has been on an improving path even though the three-, six-, and 12-month readings linger below the neutral 50% mark.

The queue standings position the February reading in each case among the last four years of monthly observations for each reporting unit. Mexico and Russia show the highest percentile standings on the data they report; Russia is showing a standing in its 98th percentile. Mexico reports a 94th percentile standing. The weakest standings are in Japan that has a 10-percentile standing, China that has a 13.3 percentile standing, and Germany that has a 14-percentile standing. The median standing among all the countries in the table is at the 47th percentile mark which is below ‘50’ telling us that the median reading for this cross section of countries a generally a reading below the individual reporters’ medians over the last four years.

In terms of the averages for various groupings of countries, the U.S., U.K., European Monetary Union, Canada, and Japan show general improvements. The average PMI manufacturing values from a year ago through February show that three-month, six-month, and 12-month values don't show much change, but there is a more significant improvement in February. The BRIC countries also show stasis for the most part for three-, six-, and 12-months, a little more significant move up in February. The Asian average follows that same pattern. In terms of the percentile standings, the more highly developed countries have the lower standing. The U.S., U.K., EMU, Canada, and Japan group is the weakest; Asia occupies a middle ground on the average ranking, and the BRIC countries have the highest percentile queue standings at about the 65th percentile.

Weakness is broad across sectors Japan’s industrial production fell hard in January, dropping 7.4% (month-to-month!) after rising 1.2% in December; the December gain followed a drop of 1.3% in November. Japan's industrial output has been unstable for a number of months: manufacturing production has fallen month-to-month in 11 of the last 16 months. During that span, there was only one episode of industrial production rising month-to-month in consecutive months and one of those two months was an extremely small gain of only 0.1%. The changes in industrial output have been choppy during this span. The last five monthly increases in industrial production averaged a month-to-month rise of 2.6% while the last 11 declines averaged a month-to-month drop of 2.1%. These are extremely volatile numbers, and it makes it very hard to pin down an exact pattern for industrial production except that the preponderance of declines makes it clear that the direction is lower, and the speed is ‘too-fast.’

The table makes it clear that there are declines in industrial production over three months, six months and 12 months for all the categories in the table with one single exception - that is transportation output over 12 months. And the progression is to faster and faster declines with exception of utilities output over the last three months that fell at ‘only’ a 5.6% annual rate while declining at an annual rate of 13.8% of six months.

In the quarter-to-date, industrial production is falling overall in manufacturing and in each category at astonishingly strong paces; even utilities output is falling at a double-digit rate early in the first quarter at a 12% annual rate of decline.

The authorities are giving guidance for some recovery in industrial production ahead although that's not particularly reassuring. After such sharp declines, Japan is really staring in the eye a great deal of weakness.

In addition to that, there's not anything queued up that is boosting industrial production in any obvious way for the road ahead.